The Role of Revenue Mobilization on Economic Growth and Development in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
Broadly, the objective of this study is to investigate the impact of role of revenue mobilization on economic growth from 1991-2017. Other specific objectives include:
- Determine the impact of tax on economic growth in Nigeria
- To investigate the impact of tax mobilization on the growth of the economy of Nigeria.
CHAPTER TWO
LITERATURE REVIEW
Introduction
Tax revenue is a veritable source of government revenue; however, it is still debatable in the literature especially in determining the optimal tax revenue to be imposed to enhance development without unjustly inflicting welfare cost. Economic theories of taxation approach the question of how to minimise the loss of economic welfare through taxation and also discuss how a nation can perform redistribution of wealth in the most efficient manner. This research work focuses on the effect of tax revenue on economic growth and development in Nigeria. This chapter provides reviews of diverse literatures as well as the theoretical and conceptual frame work of the study.
Conceptual Issues
Taxation and tax administration in Nigeria
According to the black law dictionary (1999), tax is a ratable portion of the produce of the property and labor of the individual citizens, taken by the nation, in the exercise of its sovereign rights, for the support of government, for the administration of the laws, and as the means for continuing in operation the various legitimate functions of the state. The Institute of Chartered Accountants of Nigeria (2006) and the Chartered Institute of Tax revenue of Nigeria (2002) view tax as an enforced contribution of money, enacted pursuant to legislative authority. If there is no valid statute by which it is imposed; a charge is not tax. Tax is assessed in accordance with some reasonable rule of apportionment on persons or property within tax jurisdiction.
Anyanwu (1997) defined tax revenue as the compulsory transfer or payment (or occasionally of goods and services) from private individuals, institutions or groups to the government. Sanni (2007:5) advocated tax as an instrument of social engineering which can be used to stimulate general or special economic growth. From Onairobi (1994); Taxes are generally either of two types; Direct and Indirect. A direct tax is levied on income or profit while an indirect tax is levied on expenditures. Good examples of Direct Tax include Personal Income Tax, Capital Gain Tax, Profit Tax and Wealth Tax. Examples of Indirect Tax include Excise Taxes, Export Taxes, Import Duties, Expenditure Tax, Sales Tax and Value Added Tax.
Jarkir (2011) iterated that tax is a contribution exacted by the state; it is a non penal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria. The classical economists were of the view that the only objective of tax revenue was to raise government revenue. But with the changes in circumstances and ideologies, the aim of taxes has also been changed. These days apart from the objective of raising the public revenue, taxes is levied to affect consumption, production and distribution with a view to ensuring the social welfare through the economic development of a country.
According to Nzotta (2007), four key issues must be understood for tax revenue to play its functions in the society. First, a tax is a compulsory contribution made by the citizens to the government and this contribution is for general common use. Secondly, tax imposes a general obligation on the tax payer. Thirdly, there is a presumption that the contribution to the public revenue made by the tax payer may not be equivalent to the benefits received. Finally, a tax is not imposed on a citizen by the government because it has rendered specific services to him or his family. Thus, it is evident that a good tax structure plays a multiple role in the process of economic development of any nation which Nigeria is not an exception (Appah, 2017).
Sen (1999) explained that under current Nigerian law, tax revenue is enforced by the 3 tiers of Government, that is Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection) Decree, 1998.
Successive governments have expressed concern about the low level of productivity of the Nigerian tax system. This has been attributed largely to the deficiencies in the tax administration and collection system, complex legislation, and apathy, especially on the part of those outside the tax net (Ndekwu, 1991: Ariyo, 1997). This is because as a means of meeting their expenditure requirements, many developing countries undertook tax reforms in the 1980s. However, most of these reforms focused on tax structure rather than on tax administration geared towards generating more revenue from existing tax sources. (Osoro, 1991; Ariyo, 1997).
In the words of Enegbu et al (2011), the Nigerian tax system has undergone several reforms geared at enhancing tax administration with minimal enforcement cost. The recent reforms include the introduction of TIN, (Taxpayer Identification Number), which became effective since February 2008, automated tax system that facilities tracking of tax positions and issues by individual tax payer, E-payment system which enhances smooth payment procedure and reduces the incidence of tax touts, Enforcement scheme which engages special tax officers in collaboration with other security agencies to ensure strict compliance in payment of taxes.
Section 8(q) of FIRS Establishment Act 2007 has led to an improvement in the tax administration in the country, thus, the integrated tax offices and authorities now have autonomy to assess, collect and record tax. Despite this improvement, there are still a number of contentious issues that require urgent attention and among them are the appropriate tax authority to administer several taxes, the issue of multiple taxes severally administered by all the three tiers of government which sometimes imposes welfare cost and the issue of the paucity of data base, which contributes to tax avoidance in the country. (Unegbu et al (2011)
Unegbu et al also added that the issue of corruption is still a perennial issue in the country and this reduces the confidence and trust of the tax payers in discharging his civic duty. The issue of infrastructural development is also a crucial issue, in Nigeria; the level of infrastructural facilities is in a deplorable state, most of the facilities (electricity, water, etc) are often privately sourced, thus a number of people wonder what the tax collected are used for and tendency to evade tax payment.
Also in the view of Oni (1998), a critical challenge before tax administration in the 21st century Nigeria is to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of tax revenue in our personal and business lives which include: promoting economic activity; facilitating savings and investment; and generating strategic competitive advantage. If tax administration does not for any reason meet the above challenges, then there is a desperate need for reform in the area of the tax regime we run, and in the administration of taxes.
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CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter gives the methodology employed in the study, involving a discussion of data collection analysis techniques. Against this background, this chapter presents the research design, methods of data collection and techniques analysis of data to be used in the study. Effort is made to describe different tools or techniques employed while analyzing the work. The research focuses on the role of revenue mobilization on economic growth and development in Nigeria.
Research Design
A research design is the framework or the plan of study that is used as a guide in collecting data and analyzing the data. Also, research design is the plan and structure of investigation conceived so as to obtain answers to research questions. In order words research design is the base method or a tool that is applied in the collection of data that is relevant to provide solution to the research problem (Ndagi 1999).
This study adopts the Ex-post facto method of research. This is because data needed for analysis already exists. The study will cover Nigeria‘s economy with time series rather than cross-sectional data being used. Data relating to revenues from different tax components, investment expenditure and GDP will be collected for the years 1991-2017. The study uses Vector Error Collection Model (VECM) to examine the relationship between taxation and the Nigerian economy which will be measured using its Gross Domestic Product (GDP).
Methods of Data Collection
The data for this study will be obtained mainly from secondary sources. The secondary data that relates to relevant information that depicts the tax structure and characteristics of Nigeria will be collected from the Central Bank of Nigeria statistical Bulletin and Federal Inland Revenue Service (FIRS). The data is made up of Gross Domestic Product (GDP) of Nigeria from 1991 to 2017 while the data for tax revenue covers the same period and captures revenues from petroleum profit tax, company income tax, value added tax, education tax and all consolidated taxes.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Introduction
This chapter presents the result of data analysis and tests of hypotheses formulated earlier in the studies. First, stationarity test results are presented and analyzed, and then the analysis of the regression results follows along.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
The research work focuses on the role of revenue mobilization on economic growth and development in Nigeria. The first chapter began with providing a background on the Nigerian tax system and the changes that it has gone through as well as providing details of tax revenue in an economy.
It was stated that tax revenue plays a crucial role in the economy by promoting economic activity and making funds available in the government purse that can be used to adequately execute massive projects to the benefit of the society. Despite the massive income realized via tax revenue in the economy, it was opined by Olashore 1999 that the economy still needs radical reform as the impact of tax revenue is not properly felt, hence, the economy is still in a state of slumber.
The main problem that necessitated this research work was deduced from past studies with the aim of finding out t e current state of things and also to see the position as it upholds in Nigeria.
The objective of the research work is to critically identify the impact of tax revenue on Nigerian economic growth from 1991 2017 and to ascertain the relationship that exists between revenue generated from taxes and the Nigerian economy.
The main significance of this study lies in the fact that the study serves as an update on the work done on developed and developing economies; Nigerian economy is the main focus of this study. Therefore this study adds to the body of knowledge by investigating the deficiency in the findings of previous researchers on the impact of tax revenue on Nigerian economic growth. In chapter two, diverse literatures were reviewed and a lot of things were uncovered. Tax revenue was said to be a veritable source of government revenue, it is as certain as death. However, it is still debatable in the literature the optimal tax revenue to be imposed to enhance development without unjustly inflicting welfare cost. Also, level of spending in any economy is affected by the level of tax revenue. To progress further, the literature review looked into tax revenue administration across the globe, role of tax revenue in economic development, how the Nigerian tax system function and the major challenges it is faced with.
The researcher also made frantic efforts to discuss some of the various taxes that form the independent variables of this research work. The researcher concluded the review of literatures by adopting the expediency theory which lays emphasis on the fact that tax revenue should be able to link its activities to outcomes evident in a state (Country or Nation). This implies that tax revenue is very important to the growth and development of any country as tax proceeds helps in rural and urban development in the form of road constructions, hospitals, schools and other social amenities.In chapter three, efforts were made to describe different tools or techniques that were employed in analyzing the result of the functional test carried out on the hypothesis. The study adopted an econometric method of analysis and data were sourced largely from secondary means comprising of the CBN annual statistical bulletin. In this chapter, details of the source of data, data estimation criteria, method of data analysis were discussed.
In chapter 4 which is the analysis and interpretation of data, the chapter presents data used to empirically investigate the impact of tax mobilization on the Nigerian economy. Time series data was used to capture the trends of tax revenue in Nigeria, and its contribution to GDP ranging from the year 1991-2017. The data were analyzed with E-views 6.0 using Vector Error Correction Model (VECM).
The test carried out on the various tax revenues to determine their individual impact on GDP shows that petroleum profit tax, company income tax and value added tax has a positive impact on Nigeria‘s economic growth.
The statistical tool use to test for the presence or absence of serial correlation is the Durbin Watson Statistics which revealed the nonexistence of autocorrelation. Having obtained an insignificant probability at 5%, we failed to reject the null hypothesis. We hence conclude that our model‘s residuals are not serially correlated.
Normally by default, most statistical software run regression tests on the assumption of homoskedasticity, e-views 6.0 inclusive. To avoid qualifying a result whose residuals might have violated one of the classical assumptions such as constant variance, we therefore tested for heteroskedasticity- that is whether constant variance exists. This was done using VEC residual heteroskedasticity. This tests the null hypothesis that constant variance exists. Since our probability is not significant here, we again fail to reject the null hypothesis. We hence uphold that our residuals are indeed homoskedastic.
Conclusion
The findings of this study contribute towards a better understanding of tax revenue and economic growth in Nigeria. GDP and four other variables that represent petroleum profit tax, company income tax, custom and excise duties, and value added tax were developed to test which factors best describes economic growth in Nigeria.
Results showed that there is a positive relationship between the contribution of taxes and GDP and that tax revenue has a great impact on the GDP of Nigeria. It can therefore be said that there is a strong positive relationship between the contribution of revenue from taxes and GDP as shown in the result presented. This signifies that tax revenue has a very high impact on the economic growth of Nigeria as a source of revenue available to government for the purpose of Growth and development.
The implication of our findings is pointing majorly at policy makers, especially the Federal Board of Inland Revenue as most of our variables shows a positively significant relationship with economic growth, meaning that there should be no area in tax collection that should be taken lightly as they have all proven to be a major variable in connection to the growth of the economy. Aso, for researchers, the study will re-introduce them to a different direction of ways in which tax revenue can contribute to the economic growth in Nigeria and add to the existing literatures on this subject matter and also ensure that the regulatory body implement policies that will reduce the loop holes in tax laws which tax payers capitalize on to evade tax.
Our analysis has thrown some light on the impact of tax revenue on Nigeria‘s economy. It is glaring that the Nigerian total tax revenue generated has a significant impact on the economy in general.
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